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. Last Updated: 07/27/2016

EU Looks To Russia To Solve Fuel Woes

Bent on averting future fuel crises, the European Union turned to energy-rich Russia on Tuesday to start hashing out a deal that could double fuel exports to Europe.

Representatives from the European Commission sat down with officials from gas and oil companies in Moscow to begin negotiations on setting up a strategic partnership, Itar-Tass reported.

Under a draft of the deal, the partnership would oversee the construction of an entire infrastructure for transporting oil and gas to Europe. The European Union is volunteering to finance the building of pipelines, and the project would be completed by 2020.

With the project, the European Commission wants to double Russian exports, a move that could see a huge windfall for Russia’s economy.

Officials are keeping mum over whether the exports would be offered at below-market prices. But at current prices, Russia would rake in $16 billion by doubling its annual EU gas exports of 80 billion cubic meters to 160 bcm, according to United Financial Group.

"The European Union is already a customer of Russia for its oil exports," EU spokesman Jonathan Faull said Monday in remarks reported by Reuters. "We want to change the commercial relationship into a long-term strategic partnership that would benefit both parties considerably."

There was no word late Tuesday of what had been discussed at the first meeting, and the two sides were expected to meet again Wednesday.

It was unclear which Russian companies were participating in the talks.

The European Commission is looking to Russia in a bid to reduce its dependence on fuel from the Organization of Petroleum Exporting Countries, EU officials said. Europe imports 75 percent of its oil from OPEC, and that amount could grow to 85 percent by 2020 if alternative fuel sources are not found, they said.

The EU wants to avert another energy crisis like the one that swept through Europe last month when tens of thousands of protesters took to the streets to denounce sky-high fuel prices.

European Commission head Romano Prodi proposed negotiations with Russia during a recent telephone call to President Vladimir Putin, according to media reports.

The Kremlin has been quick to express its support for a partnership. Putin told Prodi that Russia is willing to meet whatever levels Europe wants.

Deputy Prime Minister Viktor Khristenko said Russia is prepared to engage in a "serious dialogue" over energy issues.

Energy analysts greeted the talks with a mixture of elation and apprehension Tuesday, saying that Russia had a lot to offer but the logistics of a partnership would be daunting — if not near to impossible — to hammer out.

"It is very encouraging that the EU is looking toward Russia," said James Henderson, head of the oil and gas research department at Renaissance Capital. "This is exactly the kind of foreign direct investment that Russia has been crying out for."

Sergei Yezhov, deputy director of the independent Fuel and Energy Institute, cautioned that while the government could help set up a partnership, it could not force the nation’s producers to go along.

"It’s a problem of independent producers in Russia," he said.

The government owns huge stakes in gas giant Gazprom and No. 1 oil producer LUKoil, but has no say in the activities of the dozen or so other oil majors, he said.

Other observers fretted that Russia — which itself faces severe fuel shortages during the winter months — does not have enough energy to meet Europe’s needs. The shortages occur because producers prefer the more lucrative Western market.

In a bid to keep enough fuel at home, the government has slapped heavy restrictions on exports.

"We do not have enough oil for our internal markets," said Alexandra Samodalova, an analyst for LUKoil Reserve-Invest. "If [EU] oil imports are doubled, all the oil will go abroad."

Yury Kafiyev, an oil and gas industry analyst for investment company Olma, said Gazprom could not double its shipments to Europe even if it wanted to because it does not produce enough to export abroad while meeting the demands of national power giant Unified Energy Systems.

Gazprom would require investments of $2 billion to $2.5 billion in its gas fields in order to increase exports from this year’s projected 130 bcm to between 160 bcm and 180 bcm, according to the Vedomosti newspaper.

But despite the task ahead, EU officials seem determined to push ahead. Prodi said this week that he would present more proposals about the project at a meeting of 15 EU leaders Oct. 13-14 in Biarritz, France.